There is hope for foreign exchange (FX) users following the plan by the Central Bank of Nigeria (CBN) to embark on aggressive liquidity mop-ups to stabilise the currency after the budget is passed.
Joseph Nnana, deputy governor, financial system surveillance, CBN, who also spoke at the Senate briefing last week, gave a cue of the CBN’s likely course of action to stabilise the external sector, suggesting liquidity mop-ups would be conducted after the 2016 budget was passed to stabilise the domestic currency.
However, analysts at Afrinvest Securities Limited said this might not be enough to stimulate foreign capital flows and improve the capital account if current account was not stabilised by both short-term flexibility in exchange rate management and medium-term efforts to boost real sector productivity.
Last week, the naira further recovered at the alternative markets as speculators cash in on recent gains. The naira advanced by 9.14 percent to close at N318/$ (from N350/$) at the Bureau De Change segment, while the local currency appreciated by 9.86 percent at the parallel (or black) market to N320/$ (from N355/$) as of Thursday, March 4. The CBN clearing rate and interbank rate remained stable at N197/$ and N199.10/$, respectively.
Meanwhile, the apex bank announced that about $20 billion was held privately in bank accounts, as speculators bet against the naira.
“This week, we expect relative stability of the USD/naira pair as speculators continue to unwind their position,” analysts at Cowry Asset Management Limited said.
Afrinvest believes the fundamentals of Nigeria’s external sector balance haven’t changed much with FX inflows unable to match domestic demand, while currency restrictions subsists in the interbank market. Cash backed interbank intervention by the CBN fell to a year low of $972.7 billion in January, while monthly foreign currency inflows into the system fell to a 7-year (on a Y-o-Y basis) of $6.6 billion in December 2015, highlighting the FX shortages in the economy.
“Thus, we view the appreciation of the naira at the unregulated segments of the market as momentary and speculative pressures may resume if the status-quo on exchange rate non-adjustments and FX restrictions are maintained,” Ayodeji Ebo, head, investment research and his team of analysts at Afrinvest, said in a report.
HOPE MOSES-ASHIKE
